Quarterly Market Outlook

By October 13, 2020Quarterly Update

QUARTERLY MARKET OUTLOOK
Greg Carr, Oct 7, 2020

Quote for the Day: “I would rather sit on a pumpkin, and have it all to myself, than be crowded on a velvet cushion.” – Henry David Thoreau.

Summary: Disconnect from Reality

Despite a struggling economy and a looming presidential election, the U.S. stock market hit new highs in early Sept. in what seemed to be a “disconnect from reality.” As expected, however, it has recently pulled back from these highs. There is still significant weakness in the U.S economy, and uncertainty with the virus and the presidential election, making volatility likely in the final quarter of the year.

Economic Outlook: Weakening Growth Ahead

Despite the stock market’s recent gains, major surveys of economists continue to note considerable risks to the economy and stock market. The Conference Board’s Leading Economic Index® (LEI) rose slightly again after the worst quarter in its history, yet the report noted the “Slowing pace of improvement points to weakening growth in final months of 2020.” Most economists in the Wall Street Journal’s most recent survey expect the recovery to be a long and slow “swoosh” and not a “V”.  The most recent survey panel of the National Association for Business Economics, however, forecasts a “slow recovery” and a growing potential for a “double-dip” recession.

While there is considerable weakness, uncertainty, and risk, the government has committed to do everything they can to support the economy. And there are promising vaccine trials currently underway.

Conclusion: With markets elevated, the economic outlook uncertain, and an election around the corner, markets may fluctuate and pull back through the remainder of the year.

Until markets fall back into more reasonable valuations, or the economy catches up to market valuations, it would be wise for investors to remain cautious, tilted to the conservative side of their target allocation. This is especially true if you are in or near retirement. Markets can continue to rise despite a weak economy, but for most investors, it is better to err on the side of caution rather than take on too much risk.

Volatility and recessions are part and parcel of long-term investing. If you have a retirement plan and a managed portfolio with us, it has been designed with this in mind. But If you are concerned about market volatility or are in or near retirement and have not met with us in the past year, now is the time to do a thorough review of your plan, risk tolerance, and portfolio strategy.

Please call us if you have questions about your investments or would like to discuss this article.

God bless, stay safe, be kind to one another,

Greg